Exports issue not just pinned on yuan

The yuan exchange rate is once again under close scrutiny, and there are valid issues on both sides.

In the US, a group of senators accused China of manipulating its currency and threatened to tack on up to 40 percent extra duties on Chinese imports if the yuan is not allowed to appreciate.

China holds that managing the exchange rate is China's sovereign right and not a matter to be negotiated with other nations.

But the ultimate concern for the US is not the exchange rate of Chinese yuan, but an increase in US exports, creating jobs for Americans.

This month, the US Presidential Export Council will meet for the first time to discuss how to meet planned goals of doubling US exports and creating 2 million jobs by 2015.

The recent news that China ran a monthly trade deficit in March for the first time in six years may brighten their prospects, but some Western economists still see this as only a temporary blip in the overall trade imbalance between the two nations.

A higher value yuan may help, but will by no means be enough to solve the US trade deficit with China.

For the US, relaxing export controls over high technology and gaining further market access through trade negotiations can be more effective in creating jobs in both the short and the long run.

The US has a strong record in this area, doubling its exports to China in five years, from $34.7 billion in 2004 to $69.6 billion in 2009. China's share of US exports increased from 4.2 percent to 6.6 percent during the same period.

China has now become third largest export destination for the US, second to Canada and Mexico, whereas back in 2001, China was only the 11th largest.

How can the US sell more to China? High-tech exports to China need to catch up. In the last 10 years, the US high-tech exports to China have lagged behind those of Japan and Europe.

In 2008, although US high-tech export to China reached $24.1 billion, the share of US products decreased to 7 percent from 18.3 percent in 2001, lower than the 9 percent from the EU and 14 percent of Japan.

The drop in the share of US high-tech exports to China is mainly due to domestic export controls. In 2007, the US added 47 new items to the export control list toward China, including digital machine tools, certain fiber materials, and electronic devices which were previously exportable to China without a license.

These controls have a broad negative impact on US high-tech companies and thousands of US jobs. Many Chinese firms are cautious about investing in projects involving products on the US export control list.

Export controls against China should be relaxed or eliminated in line with global market realities.

The US is no longer the sole owner of many technologies. Many items in the export control list are being sold freely elsewhere in the world by non- US competitors.

The US can also seize new market opportunities by encouraging China to further open its economy through the ongoing Doha Round Negotiations at the WTO.

The potential agreements will assure farmers, manufacturers, and service providers of lower tariffs and more transparent rules in all WTO members, including China.

China has a large appetite for US exports in almost every area where the US has a competitive advantage, such as machinery, aerospace, new materials, biotechnology, agriculture, and services.

The yuan exchange rate may remain an issue. The argument for a 40 percent appreciation of Chinese yuan, however, overlooks the fact that the US trade deficit with China is essentially multilateral. Exported goods from China have input from multiple countries, including other Asian countries and US multinational corporations.

If the US does not import inexpensive, good quality consumer goods from China, these kinds of imports will likely be substituted with those from other low-cost countries such as Bangladesh or Sri Lanka.

The only difference is that those countries may not use this money to reinvest in the US market, as China does.

At this moment when recovery is slow and fragile, the world, more than ever, needs the US and China to stand side by side.

They can, and must, find mutually acceptable solutions, or else, the world economy will be in peril.

The author is program officer for strategic analysis and China at the International Center for Trade and Sustainable Development, Geneva, Switzerland. forum@ globaltimes.com.cn